When Samuel Eliyahu, the Chief Rabbi of Safed, issued an edict in October calling on Jews to refrain from renting or selling apartments to non-Jews many dismissed him as a lone fanatic. Today, according to the Israeli newspaper Yedioth Ahronoth, more than 300 rabbis across Israel have signed a letter backing the ruling. It seems clear, therefore, that Rabbi Eliyahu's thinking is not that of the lunatic fringe but represents a growing mainstream trend in Israel.

Despite its grotesque nature this is nothing new. The late Israel Shahak, in his book Jewish History, Jewish Religion, devoted an entire chapter to the subject of discriminatory laws against non-Jews. In many respects, therefore, what is unfolding in Israel today, in the 21st century, is a natural consequence of an inflammatory political discourse that has spread across Israeli society.

There are already frantic damage limitation exercises, and rightly so, because no one knows where this will end. There are red faces as a result of the shamelessly racist nature of this Jewish version of a "fatwa" and its supporting letter, which reads thus: "The neighbours and acquaintances [of a Jew who sells or rents to an Arab] must distance themselves from the Jew, refrain from doing business with him, deny him the right to read from the Torah, and similarly [ostracize] him until he goes back on this harmful deed."

Regardless of any debate on the interpretation and relevance of verses from the books of Deuteronomy, Numbers and Joshua, there is absolutely no doubt that what we are dealing with here is serious religious bigotry. What makes it so inflammatory and dangerous is the fact that it is fuelled by political populism, led by Israel's ruling right-wing elite.

Twenty years ago, when the Madrid "peace process" got under way, the Palestinians were called upon to recognize the state of Israel. Without consulting his people, as Netanyahu is promising to do today in the event of any peace agreement, Yasser Arafat gave such recognition. Today his successor, Mahmoud Abbas, is called upon to grant yet another form of recognition – Israel as a Jewish state; a state not for all of its citizens, but for Jews from all over the world.

Without doubt, there will be other outlandish demands of this kind before we are through. They are all intended to strengthen Israel's soft underbelly, often referred to as its "demographic problem"; its Palestinian citizens, all 1.5 million of them. Having dispossessed the Palestinian people in 1948 and exiled three-quarters of them before building their state on Palestinian land, the Israelis have never felt really secure. No amount of American largesse, military or otherwise, has managed to bestow a sense of normality.

The whole idea of official laws and rabbinical edicts is to make life so hellish for the Palestinians that they will pack up and leave their homeland of their own accord. For all the apparent urgency, however, it is clear that time has caught up with Israel; the modern state cannot in the 21st century hope to repeat what its founding fathers did in 1948, hence, the Zionists' best hope today is a form of "voluntary" ethnic cleansing. In Zionist terminology, this is called "silent transfer".

Is it mere coincidence that the support for the rabbis' letter surfaced simultaneously with a conference attended by right-wing Israelis which discussed the transfer of Palestinians to Jordan as their "alternative homeland"? From a European perspective, what is alarming was the presence of controversial anti-Islam far-right Dutch MP Geert Wilders at that conference, voicing his full support for such "transfer". A Palestinian state to the west of the River Jordan would, he claimed, pose a threat to the existence of Israel.

European leaders are, more than ever, obliged to challenge this racist narrative. It is positive and welcome that many Jews have spoken out and condemned the rabbis but the onus remains on governments in Europe to blacklist and censure all those who signed this document as they to do with Muslim scholars with indecent haste based on spurious claims and innuendo. It requires such a measure to send a strong message to those rabbis and their supporters that ethnic cleansing has no place in civilized societies.

The European Union should also censure those bodies which engage or foster ties with the individuals concerned and their institutions. Javier Solana, shortly before he stepped down as the EU's foreign policy chief, told a conference convened by Israel's President Shimon Peres, "There is no country outside the European continent that has this type of relationship that Israel has with the European Union." He added, "Israel, allow me to say, is a member of the European Union without being a member of the institutions. It's a member of all the [EU's] programmes; it participates in all the programmes." Israel cannot have it both ways; it cannot claim to be a part of Europe and benefit from European diplomatic support, while at the same time threatening and undermining the values upon which European society is based.

Many of the rabbis who signed the shameful document are publicly-funded municipal rabbis or principals of religious and educational institutions in Israel. Their views resonate across Israeli society. As the Nazareth-based British journalist Jonathan Cook observed, "While racism lurks on the extremist edges of most religious faiths, in Israel it is increasingly enjoying high-level sanction among the most influential sectors of the religious establishment." Because of the grave danger it presents, this rabbinical racism should be confronted before it has time to disperse more widely.